Q3 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
Again, ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
Good day, ladies and gentlemen, and welcome to the Agilysys fiscal 2023rd quarter Conference call. As a reminder, today's conference maybe recorded I would not only to turn the conference over to Dave What Vice President of corporate strategy and Investor Relations Agilysys you may begin.
Thank you Sheree and good afternoon, everybody. Thank you for joining the Agilysys fiscal 2023rd quarter Conference call. We will get started in just a minute would management's comments well before doing so let me read the safe Harbor language. Some statements made on today's call will be predictive and are intended to be made as Ford.
Looking within the Safe Harbor protections of the private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance and continued business momentum.
Although the company believes its forward looking statements are based on reasonable assumption.
Such statements are subject to risks.
And uncertainties that could cause results to differ materially important factors that could cause actual results to differ materially from deep in the forward looking statements are set forth in the company's reports on Form 10-K , and thank you and other reports filed with the Securities and Exchange Commission.
With that I'd now like to turn the call over to Mr., Umesh, Sreenivasan, President and Chief Executive Officer of Agilysys Ramesh. Please go ahead.
Thank you, Dave and good afternoon, everyone.
Welcome to like Cisco 2020 third quarter earnings call.
Joining given me on the call today, it's Tony Pritchett CFO .
We're pleased to report that'd be completed yet another strong quarter highlighted by revenue of $42 million, a 17, oneseven a 17% increase over Q3 of last year.
The record revenue across all three revenue lines that getting revenue.
But Arctic revenue and professional services revenue.
With respect to Oneq quarterly revenue.
Since our ninth consecutive sequential revenue increase.
Seventh consecutive record revenue.
And six consecutive double digit yodle, what are your revenue increase quarter.
They're getting revenue was it could between Q1 million dollars.
Led by a 28% yodle what are your growth in subscription revenue.
Our customer satisfaction levels continue to improve.
As a result customer churn as opposed to digital ticketing revenue continues to decline significantly yodle, what do you have I suppose being the case the boss couple of years.
That improving metric continues to validate our organizational improvements across all aspects of out of business.
Especially in product development professional services.
And customer support.
Professional services revenue for Q3 fiscal 2020 wasn't record 8.9 million.
This was a second consecutive record revenue quarter in professional services.
I didn't mention did not last call.
Professional services is a good measure.
Hope busy on with video software implementations all across the globe.
I just did sort of good leading indicator of the old old simplified of business, especially well future growth of recurring revenue.
Due to changing customer defenses, an increasing number of new customer software implementations in one subscription revenue arrangements.
I'm filling momentum continues to be strong without a global selling success in Q3 fiscal 2020 being one of the bottom best anyway.
Please note we use the word sales selling and bookings.
You mean, new product and service to seal arrangements with customers.
While the revenue is of course recognize revenue.
In many other places the words sales and revenue tend to be used interchangeably.
While it means different things for us.
For US sales this quarter will partially affect the cutting cost of revenue and also contribute towards building future ticketing revenue, but Arctic revenue and services revenue backlog.
With the exception of one quarter way back in fiscal 2016, which contained a couple of significant deals.
The last five quarters have been I've, five best selling quarters ever.
This is helped build out revenue backlog significantly, making our revenue growth increasingly more consistent and predictable.
In addition, the last six quarters through Q3 of this fiscal year have been six best subscription booking quarters on record.
Which augurs well for continued subscription revenue growth.
During Q3 fiscal 2020 be added 18, new customers to one family.
Our international momentum continues to grow.
Q3, this fiscal year wasn't very good sales squadron put us in the back region.
It was a second best overall international sales quarter.
To a lot of takes too hot cut in sales and revenue growth.
Being led by our market, leading point of sale feel it solutions Infogenesis and Rguest buy kiosk.
Well no sign of star performer, Infogenesis, which for the most spot handles Pos top facing software solutions.
I guess bite kiosk, which handles the growing demand for guest facing kiosks and other functionality requirements.
Continues to build momentum in the marketplace, but increasing instances.
Computer systems being replaced in employee cafeterias in multiple large and prestigious workplace campuses all across the U.S.
Why not be with solutions by themselves is that good enough to tell you about revenue and profitability levels for the forward at a significant piece for the foreseeable future.
We continue to improve lot of property management system BMS offerings.
Several of our new logo wins during Q3 fiscal 2020 included P.M.S. software solutions as well.
We've also had good success during the past couple of years building, a fifth of emerging products, which other ancillary software modules, which walk in conjunction with.
That's trends to support the U.S. and BMS products.
Especially on the be a miss side of the accretion there was a major industry need for well integrated solutions, which can putting together the bundle core pms.
It's more deals like Derrick channel web based booking systems.
Mobile chicken checkout.
He asked checking checkout.
Yes loyalty management.
So this optimization to better manage radius hospitality thoughts and operations.
Bob gone.
And other gift activities management software.
Yes, several customer sites already implemented such modules integrated with the quote BMS products also provided by us.
Something and significant improvements in operational efficiency guest experience.
And guest satisfaction.
While there are many competing Pos windows in the marketplace today.
They're not far fewer major P.M.S. providers.
And then I'm going to providers, what actually trying to create fully integrated the model of Pms ancillary modules is even fewer.
Customers are increasingly inclined to use asked fuel vendors as possible to get such integrated software solutions from and that's a trend which is favorable to what product and strategy detection.
Do you have no so close to 100 beams containing at least one of these emerging product modules.
All of them coming just in the past six months.
Thanks to these additional software products.
Average deal sizes, increasing.
Crucial them that our competitive advantage is increasing but not comfortable competing windows as intensely focused as be up in providing end to end software solutions and delivering a fully integrated technology platform to serve the full breadth of hospitality operators and.
Evolving guest engagement ecosystem.
Customers can do industry I stopped for such robust and that's generally the Latinos.
Being the partner they can depend on for both due to be great execution and industry leading innovation.
With respect to U.S. domestic markets during Q3 fiscal 2020 in the gaming vertical.
Shouldn't be resort casino located in Minnesota, and the Grand Casino and resort located in South Dakota invested in both out of P.M.S. and POS solutions, along with a couple of other software modules.
Why did the cadence of casino and resort recently purchased that ought to get stayed Vms solution to run that lodging operations.
Mission, we significantly expanded our feel its business partnership with one of five largest gaming customers during the quarter.
In addition to what he's starting to same into gaming hotel to thoughts and cruises and traditional managed foodservice when it comes.
During the last couple of quarters. We've also made good breakthroughs into their new radio is a focus in managed foodservice higher education and healthcare.
During Q3 fiscal 2020, we had new customer wins in the segment, including long, who do you know, what's the Virginia and another healthcare fixes deemed Texas.
[noise] backed place table management team with senior executives, who have all been with us for a while now all of them wonderful team players what passionate about the company and the huge potential be happy for US we continue to make good progress with all the business initiatives. We started on a couple three years ago.
We started this fiscal year with annual revenue guidance of 11% growth over the prior year.
141 million level.
Then increase to during our last call to 14%.
We know what increasing to 16% onesix 16th.
We continue to expect a significant revenue growth.
Also be accompanied by a strong adjusted EBITDA profitability Euro what are your growth of 25%.
Our adjusted EBITDA for Q3 fiscal 2020 was 3.2 million, which is close to record levels.
Encouraged by our successes during the past couple of years, we continue to increase I didn't see the sort of saying to drive home otter whitening competitive advantage.
Without any significant increase in R&D costs as a percentage of revenue.
I didn't see teams up currently about 730% of strong compared to about 230 at the beginning of calendar Twentys 17.
This increase has afforded us the ability to strengthen and modernize I've called products quicker and more effectively.
So increasing innovation live is creating well integrated additional high value software modules, which face much less competition in the marketplace.
And is helping us focus on a long term topline and bottom line growth strategies.
In summary.
Hitting our stride operationally as a small company with a big realistic vision and the resources necessary to execute and you know it consistently well.
We understand well the nuances and all patients realities of disciplined profitable revenue growth.
There is a high demand into growing hospitality industry. Yeah. Currently an intensely focused on for the kind of integrated software solutions, we continue to create an in house.
We are beginning to see that a sense of having a solid good team in place, which is well positioned to significantly outperform the competition.
Great innovation.
We look forward to talking to all of your gain in about four months from now maybe we'll be reporting our fiscal 2020 fourth quarter and end of fiscal year to subs.
With that let me handle with according to our CFO Tony budget for more color on our financial results and future outlook plenty.
Thanks for mesh mm mm.
We're happy that our business momentum continued into the fiscal 2023rd quarter.
We're hitting our stride with respect to the plan, we set out on three years ago I'm, turning this company into a consistently profitable top line growth company.
The fact that this quarter was our six consecutive quarter of double digit year over year revenue growth with strong adjusted EBITDA to back it up is solid evidence of that.
We are focused on delivering the best most reliable products to our customers and supporting our customers ever changing business needs and we're confident that this will continue to drive our success.
Looking at our financial results third quarter fiscal 2020 revenue was a record $42 million or 17% tired and total net revenue of $36 million in the prior year period.
This quarter's $42 million in revenue is made up of record revenue and all three revenue categories of our income statement effect that we are understandably proud of.
The increase in our topline was driven by an 18.5% increase in product revenue to $12.1 million.
An 8.4% increase in recurring revenue to $21 million.
And a 38.2% increase in professional services revenue.
$8.9 million.
I want to highlight that the 8.4% recurring revenue growth includes subscription revenue growth of 28% for the quarter.
Subscription revenue comprised approximately 38% of total recurring revenue.
Compared to 32% of total recurring revenue in the second quarter fiscal 2019.
Total recurring revenue represented 49.9% of total net revenue for the fiscal third quarter compared to 53.7% of total net revenue in the third quarter fiscal 2019.
It is important to keep in mind. This drop in recurring revenue as a percent of total revenue is not a negative effect for our business.
This is a representation of strong business momentum and selling success.
Our product revenue remains consistently strong growing sequentially as well as year over year.
And increasing professional services revenue is a leading indicator of future growth for our total recurring and subscription revenue.
We continue to feel that subscription revenue growth rates on an annual basis will remain above 20%.
The trailing 12 month growth rate is just over 22%.
With regard to endpoints. We currently service approximately 274000 rooms, and approximately 61000 point of selling points, reflecting an increase of one person and 15% respectable.
Compared to Q3 of last year.
Moving down the income statement.
Total gross profit was $21.1 million, representing a 13% increase from $18.6 million in the third quarter fiscal 2019.
The increase in gross profit is the result of growth across all our three revenue line items.
Gross profit margin was 50.2 per cent compared to 51.8% in the third quarter fiscal 2019.
Total gross profit margin is down slightly compared to last year due to the acceleration of selling momentum as mentioned earlier, which results in converting product and professional services contracts to revenue in the near term.
As indicated by our increased topline guidance from 14% to 16%.
Revenue was a little better than expected this year.
This acceleration of revenue growth starts with product and professional services revenue as that is the flow of revenue with our deals.
Revenue is recognized first shortly after contracts signature professional services revenue was next as we implement the systems, we now delivered.
And then recurring revenue begins.
As our selling momentum continues and with revenue growing faster than expected. Our gross profit margins are going to be less than planned since product revenue and professional services revenue has lower margins than our consolidated results.
As such we now expect gross profit margins for fiscal 2020 to be slightly less than those of fiscal 2019.
Moving on operating expenses, excluding charges for legal settlements and restructuring severance and other charges.
The third quarter, so a 5.7% increase in operating expenses to $23.7 million that compares to $22.5 million in the prior year period.
This increase is inline with our operating plan to increase costs at a slower pace than we increased revenue.
Combined our three main operating expense line items product development expenses sales and marketing expenses.
In general and administrative expenses were 53% of revenue this quarter compared to 59% of revenue during Q3 of fiscal 2019.
The increase in the same operating expense lines combined was only 5% while revenue increased 17%.
There's still much work to be done and many more opportunities to grow as such we will continue to invest in the business, including an R&D SAS operations customer services and support while maintaining our focus to increased costs well below the pace of revenue.
Operating loss of $2.7 million for the third quarter is an improvement compared to an operating loss of $3.9 million for the third quarter fiscal 2019.
Net loss for the third quarter was $2.6 million or 11 cents per diluted share.
Favourably comparing to a loss of $4 million or 18 cents per diluted share for the third quarter fiscal 2019.
You will note that we have included the non-GAAP measures adjusted net income and adjusted basic and diluted earnings per share in our earnings release this quarter.
We feel that considering income before these noncash or nonrecurring charges, resulting in EPS measure that is a meaningful representations of earnings available to common shareholders on an ongoing basis.
It is important to remember that our amortization expense, which is significant now starts to taper off starting in fiscal 2022, our fiscal year. After next.
Less than half of our current run rate of amortization will remain in fiscal 2022.
And then less than 10% will remain in fiscal 2024.
Moving to the balance sheet cash and marketable securities as of December 31st 2019 was $41.9 million compared to $40.8 million at March 31st 2019.
Compared to $37 million at December 31st 28.
As it relates to our cash flow, we reported net cash provided by operating activities of $5.3 million during the third quarter compared to $1.7 million of net cash provided during Q3 fiscal 2019, a 3.6 million dollar improvement.
Our free cash flow for the nine months into December 31st 2019 is $4.3 million better than the comparable prior year period.
These cash flow results indicate that we are on track for our expectation of significantly improved free cash flow this year over last.
During the fiscal 2021st quarter, we reported a REIT abuse asset on our balance sheet within current assets and an operating lease liability, which is split between current and long term liabilities.
These balances are the result of our implementation of assay, a 42, new lease accounting standards that became effective for us in the first quarter of this fiscal year.
This new accounting standard requires companies to record liabilities, which were previously off balance sheet obligations and the associated assets onto the balance sheet. There is no impact to the income statement classification of rent expense or depreciation expense for us.
For the fiscal 2023rd quarter, adjusted EBITDA was $3.2 million compared to adjusted EBITDA of $2.1 million in the year ago quarter.
We continue to carry approximately $220 million of well carry forwards with a full valuation allowance on our books that will enable us to remain liable for taxes only in certain foreign jurisdictions as well as minimal state taxes for the foreseeable future.
Our in our wells that are subject to exploration expire between fiscal years 2031 I'm 2030.
As it relates to our guidance given the continued improvements across our business. We're confident in raising our guidance for fiscal 2020 year over year revenue growth from 14% to 16% compared to full year fiscal 2019 revenue of approximately $141 million.
We continue to expect an approximate 25% improvement in adjusted EBITDA in fiscal 2020 compared to fiscal 2019, adjusted EBITDA of about $10 million.
The reason we are again not raising adjusted EBITDA guidance is that given the increased business momentum. We're currently enjoying we've made some continued investments in accelerating our R&D professional services and customer support strength.
Please keep in mind that fiscal 2019, adjusted EBITDA up $10.3 million.
At the benefit of about $2.2 million of capitalized software costs, which did not occur in fiscal 2020.
Growing adjusted EBITDA by 25% between fiscal 2019 in fiscal 2020 is actually the equivalent of growing adjusted EBITDA by 60%.
If we removed the 2.2 million dollar capitalization benefit from the prior year.
That's 60% improvement on revenue growth of 16% reflects the significant operating leverage we continue to work with as we manage expense.
Related investments carefully to continue to support future profitable revenue growth.
We're excited about what the future holds for Agilysys and the hospitality industry.
Customers repeatedly confirmed to us that they're hungry for a world class vendor that can provide a fully integrated suite of solutions and the equally confirmed they are impressed with how we continue to innovate and progress towards that challenge.
We are executing well against our strategic plan a plan that was set out three years ago and remains materially the same to this day.
Our financial results were strong this quarter, but more importantly, the longer term financial trends. We have reported are strong and we feel the business is set up well for the future. We will continue to focus work hard and deliver the products and services our customers want.
With that I would now like to turn the call over to the operator for questions.
Thank you. Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question. Please press the pound <unk>. Please stand by while we compile the culinary roster.
My first question comes from George Sutton with Craig Hallum.
Thank you and congratulations on the results.
I'm curious when we do due diligence, we and talk to existing and potential.
Customers, what we find is a competitor systems being replaces a fairly slow process and you mentioned this quarter you actually saw a fair bit of that I'm curious is there certain functionality youre corn types that are the appeal, that's causing that change to the made.
Yes, Hi, Josh.
Thank you for joining the call.
This is the competitive replacements picking up VP noticing that trend.
And a few quarters now I would say for the last photo five quarters.
The agent, which we have been replacing major competitive systems, because that is what we keep track of.
Replacing major competitive systems has really picked up.
They don't necessarily take too much time, Josh data have been cases made a custom and its contacted us and they have gone live without product like a couple of months later.
Some of the things that so good that.
He is in that there could be a computer system for the home a hardware the finishes coming up.
On the Pos side and when do you have spending that kind of money on that but finished they start thinking why don't we go look for a system that could be one.
The other thing that very often happens as they once certain enhancements done to help their business and very often a lot of those windows just don't have the engineering, but then weighted with all to get those changes done quickly. They will want an interface created with another system that they have bought that many competing windows, just don't do and that becomes a comp.
Feeling even for them to change the system.
David business could expand.
Which the other end of may not be able to keep up I don't think these decisions take too much time, George based on our experience.
But there are lot of cases, where lets say the marginally like another system.
But you have quite happy with their cutting system, but they would really like to have a competing system that could take time, they might wait for a year or so.
Before they really.
Make that decision, but when that are compelling even send it out of many especially with many vendors not doing great customer support these kinds of things do tend to happen a lot faster than probably walked you have a sample size is showing.
Perfect. Thank you and your your products strengthen your professional services strength, which is has been a consistent.
Thing for us to see.
Can you give us a sense on is that something we should continue to expect her a period of time are we gonna start to see the.
Subscription side of it.
Really start to show that that benefit.
Yeah.
It can service sustain that you're seeing lead to that cutting revenue and subscription revenue stream.
So like how Tony described in his.
Prepared remarks.
What comes first this product revenue, so a spot for saying.
Given the nature of our Pos business.
Certain amount of hardware comes with it a certain amount of services revenue comes with it. That's the first thing that happens and then as we go implement and the customer wants more activities from us the services revenue picks up and that's a good indicator of the fact, we are doing a lot of implementations now we are taking we have replacing a lot of come company.
So systems and we're doing a lot of new product installs of customers election quality have other product.
So as a service as activity picks up as Youre seeing in the last six months that leads to ticketing revenue.
But those customers go live on the recurring revenue you should expect will pick up and it just so happens that more and more of a lot of customers that for the putting subscription based study engines, we don't foresee them into that.
We want to be customer centric N.V. site to do what the customer wants us to do you just so happens more and more customers want software solutions based on the cloud and subscription base at agents.
So as to use the product revenue is a good indicator that our business is doing well, we're doing a lot of sales selling though.
Services revenue is a good indicator that we are doing a lot of implementations and im done that will lead to their cutting revenue in the future and it just so happens.
A good portion of the implementations we are doing happened to be sat subscription basis.
Gotcha Lastly, if I could Tony maybe helpful. Because I've had a few quick questions last few days on the potential virus impact on your Pms business.
Obviously, I understand the model, but I'm not sure most people understand what limited impact you might see a travel will reduce.
Yes, so limited impact on our business, but before that George.
But we do have employees into Shenzen in Hong Kong area. So we had a very concerned about this because employee wellbeing comes number one for us and we care about all of global employees a lot. So very concerned about our employees in Shenzhen, Hong Kong and to a certain Nixon, Singapore as well and militia.
We have a number of employees. There. So we are very concerned about everything and so far so good they have not been affected we have nowhere close to the affected regions. So we are closely monitoring it and keeping a top on that.
And we are taking vadc, if physicians as flat as travel and anything else, Wisconsin. So that's the employee part of the answer which is our number one can so no I spent a business Wisconsin.
We have more than 4000 properties all over the world what kind of using our system property sites off which only 20 out in China at the moment.
China is any initial business for US now we have a lot of growth potential there, but we have traditionally historically not had a major patients. There. So if you only have 20 properties life Deb and bid on a ballpark 20, other new selling opportunities that we had working on many properties of them belong to a.
One or two big hotel chains that we had working with.
Well it is possible that those deals get postponed due to travel and other lets fictions. So when you think about possible revenue impact maybe a 500000 dollar revenue impact in Q4 and on this fiscal year as possible for us.
He does not significant at the moment, but we had watching it carefully he does not a major part of out of business.
Thanks, guys.
Thank you again, ladies and gentlemen, if you have a question at this time. Please press. The Star then one key on your Touchtone telephone. Our next question comes from Tyler would with Northland Securities.
Thanks for taking our question.
First one for a match you talked about.
Increasing success selling modules into your existing customers.
Maybe could you drill down a little bit more into that you know what specific modules are you seeing.
Having the most impact there and then going forward you know what do you see being the most important modules for driving growth.
Yeah. So.
Good to talk to your Tyler Thank you for joining the call.
So the modules, let's break them up into Pos and P.M.S. separated.
So as far as POS is concerned you know the two main flagship products that we have about infogenesis, which is more stop facing solutions and I'll get to express kiosk, which is more.
Guest facing kiosks bad the guests can self help as big an order food items deadly from a kiosk and it just speeds up a lot of queues and other things and employee cafeterias no data be having additional product called on demand.
Helps you order the food from either your Bestop. So imagine you got into 15 float up a building and it's 11 30 in the in the mining and you're getting ready to order lunch you can audited from your desktop or you can odalisque audited from your phone as well from your smartphone so you're sitting in a hotel room, you can autopart food items from the phone.
And it will even give you details of exactly how many in the how many minutes. They can so beautiful depending on what kind of pressure that is in the kitchen. So that the on demand product as an additional software module.
Which is up which is a good margin module for us that many of our view as customers are considering and a few of them have all of the purchase on the Pms side of the business on the hotel management system property management system side of the business that had a number of products that already.
Getting good traction in the industry like one of them. It's a debit channel that booking system. So customers have always wanted away booking system that is BMS event that can differentiate you from being a platinum player with a similar play of customers I've always wanted that because most wet bookings systems that are out there.
All commissions and be a lot BMS away.
So that is one module that has already gone live with about five or six customers already then the other one is mobile check in Chicago. So that you don't need to go to the reception condo stand in acute right from your smartphone you can get a digital key and you can dedicate walk to your room or do you can't do other ticking check artificially these.
Instead of going do deception countries and also up to a kiosk. So a couple of customers a couple of big customers have already gone live with that.
Then be introduced a product called ought to get services, which basically optimizes, all desktops and operations in a whole Dan So if you're running a hotel that it's just a lot of things happening in the whole pay a lot of tasks.
Moving housekeeping thought that here at assigned to radius people and if somebody doesn't react quickly it should automatically get escalated to a supervisor so that product completely automates, all that and it integrates well with BMS and field. So there's a number of software modules like that that we have creating no that is adding strength to Pos and.
CMS and very often when you go to a lot of competing window. They will find due to a third party company that has to do that module white put us the advantages because if I didn't be spent we can do it ourselves and it's also a much better integrated with all our core products.
Okay.
Thanks, that's helpful.
I guess going back to the competitive displacements question, you mentioned kind of.
Factors that could get people to switches the Pos refresh is there any time to.
You know development you see on the horizon did pay a table or something like that that would you know a new feature that could sort of supper people into having to refresh those.
Yeah.
So talent I can give you one magic bullet like you create one module and suddenly Pip ciskei lower.
All these additional modules site, including pay a table, which went up a lot of biggest gaming customers went live with recently and that is an additional thing be support no you keep adding all these modules you keep modernizing your core product you keep adding more functionality to your cold product and somewhere along the line the scale.
Pilsen, you ought to favor and with each customer.
How much weight does it take the skill to tilt escape babies.
Give you one magic module that now that we have that everybody has to move to a few doesn't happen that way, we keep adding these competitive advantage trends and for different customers that tilting up the scale happens at different times or for different reasons I admit it's no one magic module that is going to created but I'd be.
Keep doing all this R&D innovation work it keeps tilting more and more towards that effect.
Alright, Thanks, that's all for me.
Thank you Carlos.
Thank you. Our next question comes from its Buck for real quick to Jody.
Hi, Congrats guys on the good results a couple of questions from me.
You said you guys got around 80, new customers. This quarters can you give a sense for how many of those had added Vms solutions.
Tony.
Then.
Yeah.
I think the 18, new customer new logos, new customers we've done.
I think that P.M.S., but as for not mistaken.
Once we finish this call is five.
Tony and Dave will come from that number for you, but I think the number this fall.
Great all right and a and Ramesh you also said that you know you you're seeing your average deal size, increasing with a you know to reduce churn.
In terms off you know more competition.
I'll give you give a sense all for like how much you've seen maybe your average deal size going relatively maybe on a year over year basis.
No in fact, I don't think let's say the three separate things that you mentioned is <expletive> average deal size has to do with the fact that when you go sell up erotic now there are three other modules. We can sell in that same deal, which very often the customer picks up.
We don't measure it exactly by average deal size, but we do keep track of how many are thought leaders out more than 50, K. blood and how many if I'd leaves that less than 50 cable.
And the number here.
The value of these view now selling a bulk of Teekay put it be has increased its snow at record levels that much. We can tell you. What we can give you an exact number on that customer churn that you mentioned is an entirely different measures that doesn't matter. If you think the customers we have and that is because to be service the customers better now we support them.
I'm customers normally stay with you when they see you innovating and moving the products forward, so more and more customer attention.
<unk>.
Well class levels now a customer churn is going down.
The new customer wins affords us an entirely different matter that we already talked about.
Yeah, well get on our last one from me up Ah Tony I think you mentioned the true R&D group.
Went up to as much as a 730 I believe.
Do you guys expect that to flatten out at some point or do you expect that to no move a little higher.
Yeah, Hey, a truck.
We do expect the R&D team to continue growing I'm on an absolute head count basis.
The R&D team will will continue to expand from the 730 number that we mentioned.
The way to think about R&D, you know from a financial modeling perspective, though is that this fiscal year, you should see R&D pretty close on an annual basis as a percentage of revenue to last year. It's in the 20, 728% of revenue range. You know that's a pretty reasonable number to expect going forward for the near term you know looking in the new.
Next year, we don't expect any major shifts and not as a percentage of revenue.
In the out years past next year, you know you likely start seeing that number tick down as a percentage of revenue.
But yeah, we'll continue to expand the team as far as head count goes but again, we do that you know smartly as revenue increases and as the business supports the need and again percentage of revenue is really where we focus from that perspective.
Thanks, guys. Congrats once again on a good quarter.
Thank you.
Thank you. Our next question comes from Allen Klee with National Securities.
Yes, Hi, my questions on the P.M.S. side the growth there has been relatively modest for a while now and I'm just trying to understand what has to change to accelerate that and then how do you think about the timing of.
What I would tell you to get that to double digits. Thank you.
Yes, I, let good question Alan had good to talk to yes. The Bemis Cyto fit this is actually let's send modest right. So.
You know that is of that is the quality that is the biggest elephant in the room for us and.
We are improving the products those products out of getting better than what you've seen the room count that Tony do you view it after the implementation. So for example, the four or so customers. We have signed this quarter, we have not get implemented that they have not yet gone live so Dave will add to the room count in the next quarter that room count would give you.
It's not a sold wheel room, calling but an implemented room count so that will improve over time.
But to answer your question that it's still more product to be dot light in fact, these trucks Commission.
What I didn't be expanding Riyadh, expanding that I didn't even continue to do so you know for the foreseeable future while keeping it as a percentage of revenue at the same AUD levels below baby out today, but we still have some more product walk to finish on the P.M. aside before we have the kind of competitive advantage that.
We currently have with the Pos side of the business in the Meanwhile, we had also adding all these additional software modules, which when the core product work gets done we put us in a very very good spot.
Competitive advantage in Pms will also be as big as it doesn't feel yesterday.
Growing the P.M. inside of that business has a lot about a focus now Ellen and in terms of picking up revenue and shareholder value and all that to grade levels being mentioned start contributing in the next few quarters.
Okay. Thank you and then.
In the guidance. It was mentioned that you're keeping your your EBITDA guidance and you had mentioned that that's due to reinvesting some some of the higher revenue could you maybe give some details of what that's being reinvested then.
Yeah, So Alan as we mentioned I mean, it's a consistent message last quarter in this quarter as well, where we've seen some opportunity. This year is to invest a in our SAS infrastructure.
We've seen a lot of gross a growth with our SAS implementations and we obviously have a lot of new products coming on so there's some SAS infrastructure investments that we've done as well as the R&D team as we've talked a decent amount about already.
And then with customer facing services personnel and support personnel there's been.
Some additional headcount added there as well just to support continued to support our customers as well as we can.
So that we can help address all of their issues post implementation in any you know support all the go lives that are happening.
You know you can see our professional services revenue is growing that comes from the services team that we've built and that's where most of the investment that we've talked about in mentioned and.
That we've invested this fiscal year and also and then as Tony mentioned in his.
Prepared remarks.
Even though we are seeing that.
Adjusted EBITDA growing by 25% this year from 10 million or so it was last year.
You removed a 2.2 million.
Software capitalization advantage Fynineteen had its actually a 60% increase in EBITDA six zero.
So while you grow revenue by 16% that we are guiding to now growing EBITDA by 60% is quite significant operating leverage.
We don't want to order to do that because we want to make sure that focus on growing the top line as well. So we have balancing that out about as best as weekend.
Thank you and then last question on professional services, which has been growing very fast can you help us understand.
Like how if you if you win win some business.
Timing that it takes to implement and or you are you comfortable with but how long. It takes and you get paid up front for that or is there an issue of paid were or is that an area that that you think that do you have to put more races resources into.
Thank you very much.
So as far as the payment goes Allen for professional services, just as a general rule all of our one time items that are in a contract as a general rule, we usually collect 50% or not on the front.
That's pretty standard in the industry and generally that's what we experience as well of course, there's certain customers that theres exceptions made for that et cetera, but generally speaking 50% of our onetime items up front and that includes professional services.
Now as far as the timing goes up getting installations done the way to think about that is usually and again. This is a broad generalization, but usually we can sign a contract a this quarter the product revenue would come in this quarter. The professional services would come in a quarter after that and then the recurring revenue would start coming in a quarter after that I see.
We're looking at you know generally speaking it's about a three month lead time from contract signature and implementation, we're pretty happy with that its a pretty good balance at this point and we've got the ability to get customers implemented faster if they need that.
Some customers push out implementations longer than that so it's a pretty good balance from that perspective, we're happy with the levels that we've got now now as revenue grows that professional services revenue grows certainly we're gonna have to increase the size of the services team, but we feel like a professional services margins in the range. There at today, you know high Twentys mid to high Twentys is.
Reasonable to expect going forward. So we don't we don't expect those margins to come down because we have to add people.
Okay actually can I sneak in one more question.
Sure.
Okay. Thanks.
I know you're having your user conference next week and I was just wondering kind of.
What do you think that is gonna be kind of the focus are there or maybe something new that said you think is important to to happen there.
Yes that is that is Alan there's no special one time thinking we are expecting in terms of any major announcement or anything like that so.
So all up customers getting together into the use of confidence is mostly to give them an update.
All the product improvements that have happened in the past 12 months and all the product roadmap the fusion improvement that upcoming in the next 12 months now why that is important for US is that a lot of thought of customers use either only one off out of products up maybe they used to have a products and now we have a lot more modules and products to offer.
So for example, it's a few its customer because important they understand how much advancements we've made in the P.M.S. stadia and vice versa, and if that is already a female customer. They should know all the other modules that we have to offer and the advantage is that it will be another customer there who is actually use that module and who can tell them that kind of.
Return on investment they are getting out of those models. So there's a lot of shared knowledge among the customers that normally looks out you know very well for us and also in terms of some of the challenges that they have.
They can shared with each other as to how the challenge for one of those customers as Bob talked about so that's a major part of it and we have breakout sessions, where do we also do training programs.
Customers want to get more in depth training on the products. So we do that does win so it's an accident gathering of hundreds of customer users and it also helps us improve relationships with them give them a bullet to the sources updates and made the company is going and share with them. All those details. So it's a very powerful even for us.
That we do once the.
That brings up customer base together and that is a big part of out of business growth for us, but no particular, there was no.
Major announcements that anything we are planning at that.
It's a fairly routine once the or even funds.
Thank you so much.
Thank you Alan.
Thank you I'm showing no further questions at this time I will now turn the call back over time Umesh for any further <unk>.
Thank you Shirley.
Thank you all for joining us on the call today and for your continued interest and support.
I think its its continues to be well position to increase shareholder value.
This is a terrific value creation opportunity, we are determined to make good on put out employees customers and shareholders.
I will also take this opportunity to give a very special time screw up 1200, plus team members across the globe, who are working hard every day to make Agilysys, a world class company and to our customers, who trust us with that investments now more than ever before thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.